Qualified Child

The IRS has issued some new proposed regulations on the qualifying child issue. Specifically, on not currently married parents claiming their children. (Reg 149856-03).
A few years ago, Congress attempted to standardize the definition of child in order to qualify for exemptions and credits. Of course, this left many issues hanging and none so basic as "custody" and divorced/ never married parental issues. Generally, the issue of custody is thought to be handled in the divorce, but too often both parents attempt to claim the same child. That puts the IRS in the middle of a family fight.

For tax purposes, the IRS has "simplified" the criteria for "custodial parent".

Under the proposed regulations, the custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year. The noncustodial parent is the parent who is not the custodial parent. The proposed regulations further provide that, if a child is temporarily absent from a parent's home for a night, the child is treated as residing with the parent with whom the child would have resided for the night.

That means that the custodial parent has the right to claim not only the exemption/child tax credit but could use the child to qualify for EIC, Child Care Credit and Head of Household. The custodial parent can always release the exemption (and only the exemption and the child tax credit that goes with it) to the non-custodial parent with a signed Form 8332 or a written document with all the same info. (No longer does the divorce decree alone grant the non-custodial parent the right to claim the exemption.)

Sections 151 and 152, not state law, determine whether a divorced or separated parent may claim an exemption for a child for Federal income tax purposes. A state court order or decree does not operate to allocate the federal exemption between parents.

The proposed regulations also explain the procedure for revoking the release of exemption.

The bottom line is if there is a question about claiming a child for an exemption and/or HH/EIC, the IRS wants to make the custody determination of where the child spends there nights. Once custody is decided, the question is whether an exemption release meets all of the IRS's criteria.

Comments

[Trish]

It means that your final judgment gives your ex the right to claim the child certain years. If you both claim the child and the IRS gets involved they go with custody. But he could take you back to court since you are in violation of the judgment. Your judgment may even require you to give your ex-husband a signed Form 8332 on the years he can claim the child. Form 8332 is an IRS form that is filed with your ex's return when he claims the child. Your tax professional can get you a copy of the form.

[Allison]

Won't the new law override these agreements? And will these agreements made in 2008 forward be enforceable?

Allison

[Trish]

Allison, I am not sure what you are asking. The law outlines how the IRS will determine who they give exemptions to when two or more people claim the same person. The exemption can be given to the non-custodial parent as long as the 8332 is used.

[Gerald markham]

I have read with great interest your blog on the new proposed IRS regulation regarding its proposed refusal to give effect to divorce decrees providing a noncustodial parent may take their children as a dependent for income tax purposes. Can you tell me whether this regulation has become final and if not whether it is likely to become so in time to apply to tax year 2007? I am presently responding to an IRS letter disallowing a noncustodial father an exemption in 2006 whose divorce decree unconditionally provided he could claim one of the parties three children as a deduction. And in fact in years prior to 2006 he took one of the three and the mother (as was her right) claimed the other two. However by 2006 both of the two older children had turned 18 and only the youngest age 16 qualified for the claim. So rather than lose the substantial tax benefit permitted by this exemption the mother refused to honor the father's rights under the divorce decree and instead took the deduction for this child as did the father claiming his right to do as provided in his divorce decree (as specifically described in the 2006 IRS Instructions to form 1040 pg 21 (pertaining to post 1984 divorce decrees). We are presently sending a letter (again supported by the divorce decree and these pages from the 1040 instructions) to IRS demanding they honor this claim in 2006 but it would be useful if I had a copy of the regulation prior to the 2007 proposed changes. Can you identify the CFR citation to the prior regulation (as well as the new one) before 11/28/07 when my response to the IRS is due? Meanwhile thank you for your insightful and timely analysis of this rather complex issue.

Jerry Markham
Attorney at Law
Kodiak, Alaska

[Gerald markham]

I have read with great interest your blog on the new proposed IRS regulation regarding its proposed refusal to give effect to divorce decrees providing a noncustodial parent may take their children as a dependent for income tax purposes. Can you tell me whether this regulation has become final and if not whether it is likely to become so in time to apply to tax year 2007? I am presently responding to an IRS letter disallowing a noncustodial father an exemption in 2006 whose divorce decree unconditionally provided he could claim one of the parties three children as a deduction. And in fact in years prior to 2006 he took one of the three and the mother (as was her right) claimed the other two. However by 2006 both of the two older children had turned 18 and only the youngest age 16 qualified for the claim. So rather than lose the substantial tax benefit permitted by this exemption the mother refused to honor the father's rights under the divorce decree and instead took the deduction for this child as did the father claiming his right to do as provided in his divorce decree (as specifically described in the 2006 IRS Instructions to form 1040 pg 21 (pertaining to post 1984 divorce decrees). We are presently sending a letter (again supported by the divorce decree and these pages from the 1040 instructions) to IRS demanding they honor this claim in 2006 but it would be useful if I had a copy of the regulation prior to the 2007 proposed changes. Can you identify the CFR citation to the prior regulation (as well as the new one) before 11/28/07 when my response to the IRS is due? Meanwhile thank you for your insightful and timely analysis of this rather complex issue.

Jerry Markham
Attorney at Law
Kodiak, Alaska

[Shelly]

I signed a Form 8332 for the 2004 tax year, during my divorce. My ex husband and I both claimed her for 2006 and I recieved a notice saying that I needed to be sure that I was able to claim her as my dependant. She lives with me full time (100%) phyisical custody. How do I get a copy of that 8332 form that I signed, as I do NOT have on with the copy of the Judgement I had recieved from the court. Thank you!

[Trish]

If you didn't save a copy of the 8332, then I doubt you can get a copy unless your ex gives you one. Please check with your tax preparer about the letter you received.